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From Services to Products

by

Mircea Ghita

From Services to Products

Romania and Eastern Europe are well known for their tech talent. The IT industry grew a lot in the past 20 years partly because of outsourcing services provided to international clients.

I keep seeing founders of services companies (from small to big ones) looking to build their own products and trying to tap into the startup path. Some investors might question the ability to make the change to a product business.

But let’s look at a few startups that raised some of the largest seed & series A rounds in Romania. Many of them have been founded by such founders:

  • •FlowX (raised $35M in series A led by Dawn, $8M in seed)
  • - founders previously at Qualitance - Qualitance was acquired by Alten
  • •Druid (raised $30M in series B led by TQ Ventures, $15M in series A)
  • - founders previously at TotalSoft - TotalSoft was acquired by Logo
  • •FintechOS (raised a total of $150M+ in multiple rounds) 
  • - founders previously at Softelligence - Softelligence was later acquired by Encora
  • •Sessions (raised $4.5M in seed led by EarlyBird)
  • - founder previously at Trencadis - founder later sold his shares in Trencadis

See the pattern?
They all formally cut ties to the old business. In order to make it work, founders need to go all in the product. Thinking you’d raise but also keep the control of the “mother” company won’t work. Investors don’t want you to have that luxury. Why? Because the second something is not working out in the startup, you’ll go back to the cash cow - which the investors can’t do.
 
I am not saying these companies are successful - it is too early to tell. Even though some are regarded among the best recent startups in Romania and are actually growing (so you know, depends on how we define success). But one thing is clear - all were able to raise consistent initial capital from relevant investors (and some of the largest seed / series A rounds in the region at their time).
 
These founders actually have some unfair advantage - they already have clients, partners, teams of developers, market know-how etc. which we all know it’s tough to obtain. Given our region & its limited (but fast growing) full product experience, what’s the next best thing you could expect? There can be more answers, but I think relevant outsource experience could be a good one.
 
Final thoughts
Having a tech services background in our region is not a minus. It’s too early to draw conclusions of whether the above startups are successful or not, but they had an unfair advantage to begin with. So if you have it too, use it. But structure the deal accordingly - this is mandatory.
 
And of course, this is just a part of the story, this does not mean you’ll actually be able to raise money. Some never do because they realize products are not for them.

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